1. Field of Invention
This invention relates to market traded securities such as stocks, currency contracts, bonds, commodities and futures contracts, and more particularly to a charting system and computer implementation for displaying trading activity of those securities by identifying the volume of transactions at each price bracket for each time interval within a price-time chart comprising a discrete number of price brackets and a discrete number of time intervals.
2. Description of Prior Art Computer System Architecture
Client-server architecture: An environment in which the application processing is divided between client workstations and servers. It implies the use of user terminal computers (clients) interacting with servers in a network in contrast to processing everything in a single computer system. In client-server environments, the client can perform some or all of the application processing. In an intranet/Internet environment the server can be either file or data server providing data to be processed by clients, or an application server, providing data and process services to clients. Also known as clients and servers are the independent processes running client and server services. These processes can even reside in the same computer, so the same computer can be a server and a client at the same time.
Stand alone computer architecture: an environment where computer processes are completed locally without connecting to a server.
3. Description of Prior Art Transaction Data
Company shares, commodities contracts, bonds, and commodities and equities futures contracts are listed and traded in exchanges. Exchanges use either open outcry method or proprietary electronic networks to negotiate transactions.
There are also alternative trading systems into the market, such as electronic communication networks (ECNs). ECNs provide electronic facilities that investors can use to trade directly with each other.
Financial market trading information is provided by the stock exchanges, ECNs, and a multitude of financial data providers. Typical data provided for executed transactions are time of sale, price of sale, and volume of such transaction. The ticker symbol, company or security name, and date of transaction may be included in the data provided or is implicit in the data request. This individual transaction data is collectively known as “Time and Sales Data”.
Compiled transaction data for individual stocks is available as open, high, low, and close price for transactions occurred during predetermined discrete time periods, and the total volume transacted for such discrete periods. A multitude of indicators calculated from the above data are available to show price and volume trends of selected stocks.
Exchanges, ECNs, and vendors provide market data either stored in a physical media, or through data feeds using computer networks such as the Internet. Data feeds are said to be real-time when transaction information is transmitted or made available with minimal delay from the moment it is generated or entered into transaction systems. Otherwise it is know as delayed data. Typical delays for such data are usually 15 or 20 minutes.
Price and volume information is often presented in a chart form. All charts depict price changes over time, and most of them have a vertical axis showing a price scale and a horizontal axis showing a timeline.
The timeline varies according to longer or shorter time perspectives. Typically, data is presented for a discrete number of equal time intervals, each interval ranging from 1 minute to 1-year periods and beyond. Typical time intervals are 1 minute, 5 minutes, 15 minutes, 30 minutes, 60 minutes, daily, monthly, and annually. Transaction volume information is often included together with price charts, either as a separated chart, or included in chart calculation.
Technical analysis is the study of price and volume charts to understand market activity and predict future price trends. The most basic concept of technical analysis is support and resistance. Support is a price level that acts as a floor preventing prices from dropping below that level. Resistance is a price level that acts as a ceiling, preventing prices from rising higher.
Traders have different trading strategies, time horizons, and risk tolerance for their trades. The prices at which traders sell current stock positions have a direct relationship to the price at which they bought such stock, as it will determine the profit or loss of that particular trade. The reverse is true for short sales.
Traders have different trading styles ranging from day traders that execute trades lasting minutes and looking for small percentage profit, to mid or long term investor looking for a larger percentage profit over longer periods of time.
Increased trading volume tends to occur in narrow price brackets. These increased volume price brackets influence future levels of support and resistance, as such brackets will be the point of profit or loss for an increased number of traders. My research indicates that when prices near price brackets with past increased volume, those price brackets become likely areas of increased support and resistance.
Narrow price brackets with increased volume might occur more than once in a selected time frame, even if this time frame is intra-day. Trading occurs in a stepped motion between price brackets with more volume, these steps occurring at least several times a day. For actively traded stocks these steps may occur several times in an hour period.
It is imperative to know and compare the trading volume at each price bracket, looking at different time frames. Traders with this knowledge will be able to improve market analysis and better determine levels of support and resistance.
Many attempts have been made at graphically displaying concurrently transaction price and volume over variable periods of time. However there is no system currently in use that can display graphically trading volume occurring at narrow price brackets.
My invention details a method and charting system to accomplish just that, using price-volume bars to graphically show over any time frame the price brackets with more or less transaction volume, thus providing vital information to traders.
4. Description of Prior Art OHLC Price Charting
Open, high, low, and close (OHLC) charts are the most widely used charting system today. Most charts represent prices in the ordinate axis and a set of equal time periods in the abscissa axis. For each time period bar charts (FIG. 1) represent price action with a vertical bar plotting four price points: high and low at the ends of the bar, open and close with two dashes at each side of the bar.
Japanese candlesticks (FIG. 2), or simply candlestick charts, represent the open price and close price at the ends of a segment known as the body. If the open is lower than the close the body is usually hollow, and if the close is lower than the open the body is drawn black or solid. If the low or high prices are beyond the bracket between the open and close, they display as lines above and below the body. These are known as upper shadow and lower shadow.
OHLC charts make sense when each bar corresponds to each market day where there is a defined open and close price. During market hours trading is executed in a continuum, thus any selection of intra-day time interval renders arbitrary and meaningless open and close prices.
5. Description of Prior Art Transaction Volume Charting
Histogram chart: The most common way to represent transaction volume is a histogram at the bottom of the OHLC chart, each histogram bar corresponding to each time interval in the OHLC chart. The length of the bar represents the total transaction volume for each period. There is no way to discriminate prices with more and less volume, so this vital information is lost to traders.
U.S. Pat. No. 6,272,474, Aug. 7, 2001 to Garcia recognizes the importance of volume on market analysis. The invention proposes Bid/Ask trade bars as a mean to identify trades conducted at ask prices, bid prices, and prices between both. It represents volume as single bar concurrent with each time interval. Each bar has segments showing the executions at bid, ask, and in between. Although being an improvement from traditional volume histograms charts, representing volume with a single bar per period does not show traders the vital volume-per-price information required to improve market analysis.
U.S. Patent Application 20010014874, Aug. 16, 2001 to lida et al. refers to a graph showing pending orders ordered vertically above and below the current trading price. This vertical axis represents prices of pending orders and the number of shares of each orders displayed as triangles at each side of this vertical bar. Although it intends to portray some price action it refers only to pending orders, no executed transactions, and thus allocates only one bar for each ticker traded. Also since it is constantly changing to show varying bid and ask offers it does not produce a chart spanning a time interval, and thus is unable to display market action over time. Essentially it is a graphical display of the NASDAQ Level II screen, a typical trader screen showing a list of pending bid and ask limit orders for a selected stock. Moreover, since it is a display of current offers, not executions, does not span a time frame and cannot show trading history.
U.S. Pat. No. 5,347,452 to Bay, Jr. provides a visual display of current trading volume and cumulative average trading volume for securities. It improves from previous volume display including the average volume bars next to current volume bars to determine deviation from average volumes that will denote larger price moves. Again, like traditional histograms and some of the previous art reviewed above, it fails to discriminate the prices at which volume occurs, thus missing this valuable information.
FIG. 3 shows an Equivolume chart, developed by Richard W. Arms, Jr. Arms developed a chart system to show trading volume integrated with a price chart. Equivolume charts are composed of one box for each discrete price interval. The top of the box is the high price and the bottom the low price for the period. The width of the box is proportional to the total volume of transactions during the period. In this way traders get a direct graphic input to compare market volume for selected stocks during the timeframe considered. Candle-volume charts are similar to Equivolume charts, but incorporate the upper and lower shadow of traditional candlestick charts to Equivolume boxes. Although both methods are an improvement as they integrate volume and price data, they fail as in the previous examples, to show the prices with more or less transaction volume within each time interval. This is particularly important for longer intervals. In essence, they present the same information as traditional OHLC charts plus histogram, but coupled in a Cartesian system.
J. Peter Steidimayer developed the Market Profile system for charting commodities prices. FIG. 5 shows a typical Market Profile chart. Market Profile charts are daily charts divided in 30 minutes intervals. For each interval the method identifies the price or prices with at least one transaction, using a different letter for each interval. The goal of the method is to identify prices that have traded for longer periods of time. Alternatively it provides a tick volume total for a selected period. This is a big advantage over previous charts, but still does not supply a multiple-bar type traders are accustomed to. It neither has the facility of setting price brackets beyond tick price, a very important feature in widely ranging markets such as stock markets. This method, although a big step forward, still falls short of filling the our goal easy to read and flexible chart.
European Patent 1 109 122 A2, 20.06.2001 to Li and Chong: System For Charting Financial Market Activity. In FIG. 6 Li and Chong present a system for augmenting a conventional candlestick price-time chart for technical analysis of securities price movement. The system is characterized by means of analyzing the trading activity data to determine for each discrete time interval a price bracket with substantially low trading activity or the highest trading activity. It also graphically identifies price brackets at the ends of the lower and upper shadow with minimal trading activity. The market activity compilation is done by time or volume means. Li and Chong proposed a very interesting system superimposing one element of volume data to traditional candlestick charting to identify the price bracket with highest activity or substantially lower activity. As said above, fluctuations in transaction price and corresponding volume are complex, and cannot be accurately and completely depicted representing volume averages or single points of peak activity. Li and Chong system still falls short of the goal of showing a comprehensive picture of trading volume for all price brackets for any discrete time frame.
Consequently, there is a need for a data processing system capable of showing a complete picture of trading volume in a per-price manner for any chosen time frame, and present it in a integral yet easily readable graphical chart. Furthermore, the system should be able to function with historical and real-time data to allow intra-day or long-term market analysis.